Rupert to Internet: It’s War!

Rupert Murdoch is going to battle against the Internet, bent on making readers actually pay for online newspaper journalism—beginning with his London Sunday Times. History suggests he won’t back down; the experts suggest he’s crazy. Is he also ignoring his industry’s biggest problem?

War is Rupert Murdoch’s natural state. When he launched the Fox Broadcasting Company, in October 1986, he went to war against the hegemony of CBS, ABC, and NBC. With Fox News he crossed swords with CNN’s Ted Turner. At Sky, his satellite-TV system in the U.K., he went up against the BBC. He’s battled China, the F.C.C., the print unions in Great Britain, and, recently, most of the journalism community in his takeover of The Wall Street Journal. He relishes conflict and doesn’t back down—one reason why he’s won so many of his fights and so profoundly changed the nature of his industry.

Now he’s going to war with the Internet.

Rupert Murdoch’s digital-technology savvy is a source of hilarity in his family. Photo Illustration by Darrow.

It hasn’t been a good year for Murdoch—the largest publisher of newspapers in the worst year in newspaper history. His purchase of The Wall Street Journal is widely seen as one of the worst moves of his career—News Corp. has already taken a $3 billion write-down on the purchase. His beloved New York Post, always a money loser for him, is now suffering such great losses that Murdoch is considering a partnership with or even sale to the Daily News, the Post’s arch-enemy. His once highly profitable newspaper groups in the U.K. and Australia are faltering. News Corp.’s share price has been among the hardest hit of any major media company.

And yet, Murdoch, at 78, would double-down in a heartbeat: he strategizes constantly about how he might buy The New York Times. But first he might have to save the newspaper business itself. As it happens, he, unlike almost everyone else in the business, believes newspapers are suffering not at the hands of technological forces beyond their control but at the hands of proprietors who are weaker than he is.

After fulminating for a year about how people on the Internet should pay for news, he made it official. Announcing in August the biggest losses his company has ever sustained, he added that he’d had enough and if people wanted to read his newspapers they could bloody well pay for them.

I should say I am not a neutral party here. Two years ago, I helped found Newser, a news aggregator that summarizes the stories of other news providers, which, along with the Huffington Post, the Daily Beast, and Google News, has become a focus of the print world’s antipathy. (When I tried to explain Newser to Murdoch, he said, “So you steal from me.”)

The current battle for how the Internet will “monetize” news divides pretty cleanly between managers of established media properties and people who spend their working lives in the new-media business.

Traditional media managers, who once rushed into the Internet hoping to establish new businesses as well as their new-media bona fides, have all now been chastened by its economic realities and want to take back their free content. “Obviously we will all be closely following Rupert’s efforts in this direction,” said John Huey, Time Inc.’s editor in chief, when I contacted him—a curious throwing up of the hands from Time Warner, the world’s largest magazine publisher and the world’s largest media company, which has tried more strategies on the Internet than any other traditional media company.

Almost all Internet professionals, on the other hand, think that charging for general-interest news online is fanciful—“Rubbish &hellip; bonkers &hellip; a crock &hellip; a form of madness,” in the description of Emily Bell, who has long run the Guardian newspaper’s Web site, one of the industry’s most successful—and, in fact, it has been tried before and failed. “It’s Groundhog Day,” adds Bell. The New York Times tried to levy a subscription charge for its columnists but reversed course and declared itself free again. Even Murdoch’s Wall Street Journal, the model of subscription content online, has made more and more of its site free.

I have—in nine months of conversation with Murdoch, writing his biography after he bought the Journal, in 2007— often argued the nature of Internet culture with him to little avail. Murdoch can almost single-handedly take apart and re-assemble a complex printing press, but his digital-technology acumen and interest is practically zero. Murdoch’s abiding love of newspapers has turned into a personal antipathy to the Internet: for him it’s a place for porn, thievery, and hackers. In 2005, not long after News Corp. bought MySpace, when it still seemed like a brilliant purchase—before its fortunes sank under News Corp.’s inability to keep pace with advances in social-network technology—I congratulated him on the acquisition. “Now,” he said, “we’re in the stalking business.”

Internet business strategies are often an intractable issue for media companies because they involve turf wars among contrary skill sets, business models, and corporate cultures. The result is usually bureaucratic stasis.

But News Corp. isn’t like other media companies. Murdoch can cut through and level all bureaucratic confusion and inaction. If he says it will be paid, then all the voices, which in other companies would tell you why this, logically, might not work, go silent at News Corp. The logic of the situation is remade around Murdoch’s logic. Where, in another company, Internet responsibilities might reasonably be given to those most enthusiastic about the medium, London is ground zero in Murdoch’s Internet war because the executives there are the ones most devoted to newspapers. (His 36-year-old son, James, who seems determined to do even more of whatever his father would have done, is responsible for the London operation.)

There has been, as it happens, a significant turf war in London, which might have produced a classic stasis, but which became a solution. The Times of London and The Sunday Times, historically separate papers, have long shared a Web site, controlled, to the consternation of the Sunday editor, by the daily. The decision (after a long political tug-of-war) to separate the two suddenly became an opportunity in the new Murdoch logic of making people pay. Because The Sunday Times has not had a Web site before, it would not, if it launched one with a pay wall, lose any users. Everybody who subscribed would therefore be a plus.

In Murdoch-think, there is, too, the magic of the Sunday paper. Murdoch believes people can’t do without a Sunday paper. (Two years ago, he personally supervised the makeover of the Sunday New York Post.) Ipso facto, if people can’t live without their Sunday paper, then they’ll buy it on the newsstand or pay for it online—no matter that it comes out once a week and the Web is a minute-by-minute medium.

And then, Thelondonpaper. Three years ago, Associated Newspapers—publishers of the all-powerful Daily Mail—launched the free afternoon paper Standard Lite (later London Lite), forcing News Corp. to launch its own free sheet, Thelondonpaper, which undermined News Corp.’s other papers. Murdoch never shuts a paper and never backs down from a war. Except now, with his new war against free, there was suddenly the logic to do what everybody had been begging him to do: close the damn free thing—which he did, suddenly, in August.

Still, saying that when Murdoch speaks things happen does not mean that anyone in the company has quite figured out what exactly he wants to happen. Will Fox News charge for its online content and cede the online market to CNN and MSNBC? What happens to the New York Post, whose site, because of its outdated technology, is often hard to access—even for free? And whither MarketWatch, the free financial-news site bought by The Wall Street Journal’s parent company precisely because it wanted a free site?

It is difficult not to sound catty when discussing News Corporation’s adventures with the Internet. But the litany of its failures—even more extreme than those of most other media companies that have struggled unsuccessfully online—is, I think, relevant to understanding exactly what Murdoch might really be trying to do.

From the failure of Delphi, one of the first public-access Internet providers, in 1993, to iGuide, the precursor to Yahoo and Google, which closed within months of its launch, to his son James’s aborted Internet-investing spree in the late 90s, to the great promise of MySpace, which was shortly flattened by Facebook, to the second launch of Pagesix.com, which Murdoch closed this year, after four months of operation, Murdoch’s Internet starts and stops have engendered at News Corp., in the description of Peter Bale, who once ran the Web site of The Times of London and now runs MSN in the U.K., a relative “fear or abhorrence of technology.”

In one of my favorite Murdoch stories, his wife, Wendi, who had befriended the founders of Google, Larry Page and Sergey Brin, told me about how the “boys” had visited the Murdochs at their ranch in Carmel, California. When I marveled at this relative social mismatch and asked what they might have talked about, Wendi assured me that they had all gotten along very well.

Murdoch’s son-in-law Matthew Freud—married to Elisabeth Murdoch, and one of the most well-known P.R. men in the U.K.—explained to me what he believes is the essence of Murdoch’s approach to business: Murdoch is not a modern marketer. He runs his business not on the basis of giving the consumer what he wants but through more old-fashioned methods of structural market domination. His world, and training ground, is the world of the newspaper war—a zero-sum game, where you wrestle market share from the other guy. Curiously, his newspaper battles have most often involved cutting prices rather than, as he now proposes to do on the Internet, raising them. (Murdoch has contributed as much as anyone, with his low-priced papers, to the expectation that news is a de-valued commodity.)

But more than being about cost, his strategy is about pain. What he is always doing is demonstrating a level of strength and will and resolve against which the other guys, the weaker guys, cower. He can take more pain than anybody else. While others persist in the vanity of the Internet, he will endure the short- or medium-term pain necessary to build a profitable business.

He is also a scold who can intimidate the market into doing what he wants it to do. Part of his premise now is to invite and scare other publishers and content creators into a self-created monopoly. If everybody charges, consumers will have no choice but to pay. If all publishers have the opportunity to get paid, why wouldn’t they take the money?

In the Murdoch view, media only really works as a good business if it achieves significant control of the market—through pricing, through exclusive sports arrangements, through controlling distribution (he has spent 20 years trying to monopolize satellite distribution around the world).

And, indeed, by announcing his all-paid-content intentions, he has, almost single-handedly, not just made the paid model the main topic of digital strategy in other traditional publishing companies but imbued it with nearly the force of a fait accompli.

“It’s a done deal,” says a journalist I know who’s suffered in the downturn, arguing that Murdoch, for so long journalism’s great debaser, is now its last protector.

The Murdoch plan is, however, in the estimation of almost anybody whose full-time job is occupied with digital business strategies, not just cockamamy but head-scratching.

It seems that Murdoch has, in a fit of pique, made certain pronouncements which may have to be humored by the people who work for him, but which will be impossible to implement and will have no business consequences. Or that Murdoch, a man with something of a divine gift for acting in his own self-interest, has a plan not yet quite evident to other, mere media mortals.

The position of Internet professionals is straightforward: while it’s possible to charge for certain kinds of specialized information—specifically, information that helps you make money (and that you can, as with an online Wall Street Journal subscription, buy on your company expense account)—there are no significant examples of anyone being able to charge for general-interest information. Sites where pay walls have been erected have suffered cuts in user traffic of, in many cases, as much as 95 percent as audiences merely move on to other, free options.

“What Murdoch seems to be talking about only has a logic if you don’t introduce the behavior of the audience into the equation,” says Emily Bell.

There is, alternatively, the compounding and intoxicating effect of free. While there may not yet be a way to adequately monetize free traffic, it has opened up, for many publications, great new audiences. The million-circulation New York Times has an audience of more than 15 million online. The U.K. paper The Guardian, with its 350,000 circulation, has become, online, with 10 times its print readership, a significant international brand. One theory about the decline in the fortunes of The Wall Street Journal (which allowed Murdoch to buy it) is that, because of its paid wall, the Journal was not a factor in Google searches, causing a fundamental decline in its importance, impacting its brand and standing with advertisers.

Murdoch believes that The Sunday Times has certain franchises so valuable that he will surely be able to capture a paying audience. Jeremy Clarkson is one of News Corp.’s strongest cases. Clarkson, who writes a column about cars, is a veritable British institution—everybody consults Clarkson before buying a car. He is, according to in-house estimates at the Times, now responsible for 25 percent of timesonline.co.uk traffic. The thinking is that, even if a pay wall cuts Clarkson’s traffic, there are enough fanatical Clarkson readers who will pay enough to make a paid Clarkson more valuable than a free, ad-supported one. But the problem is for Clarkson: Murdoch’s potential gain is Clarkson’s loss. It’s an almost intolerable loss—most of your readers (and their constant and addictive feedback). “When we opened the Times site to free international traffic,” says Peter Bale, “suddenly our columnists were getting speaking engagements in Milwaukee.” At The New York Times, it was the op-ed columnists themselves who objected most of all when a paid wall choked their readership and notoriety.

Murdoch has a larger problem still. It is, after all, not the Internet that has made news free. News in penny-newspaper or broadcast (or bundled cable) form has always been either free or negligibly priced. In almost every commercial iteration, news has been supported by advertising. This is, more than the Internet, Murdoch’s (and every publisher’s) problem: the dramatic downturn in advertising.

Or, in a sense, the plethora of advertising created the online problem. When Time Warner’s Pathfinder launched the first ad-supported site, in 1994, it quickly created a juggernaut of wild advertising growth online. It was a simple proposition: more traffic, more advertising money—and a free site got vastly more traffic than a paid one.

But the recession has, at least temporarily, dimmed advertising’s promise, creating something of an end-of-the-world panic.

And no one’s panic seems to be greater than that of Rupert Murdoch, who has a habit of finding himself with his back to the wall during times of recession (in the early-90s recession, he almost lost his company because of its great debt load).

It’s Chicken Little panic.

It is hard to imagine that when advertising growth resumes there will not once again be a rush to encourage traffic growth, but right now, the news business, supported for a hundred years by advertising, whose core skill has been selling advertising, believes it must right away, this second, re-create itself with a new business model where advertising is just the cream on top and where it’s the consumer who pays the true cost of newsgathering.

But what if Rupert isn’t really interested in a new business model? There may be earnest men trying to unlock the secret balance between the expectation of free content and the exceptions and the methods that might allow for micro or other incremental payments. But what if that’s not Rupert?

“Rupert isn’t very nuanced about this,” says Merrill Brown, the former MSNBC news chief, who is now a consultant to a venture trying to promote an online charge system.

Murdoch, at 78, doesn’t, practically speaking, have the time to see the online world into maturity—nor the intellectual interest to want to be part of the effort. Rather, his strategic effort may more logically be to slow it down.

The mordant joke among journalists is that, with any luck, the older among us will make it to retirement before the business entirely collapses. This may be part of Rupert’s own thinking.

It is not so much that he wants people to pay to read Jeremy Clarkson online; he wants them, or a portion of them who might otherwise have read a free Clarkson online, to return to the newspaper.

It is not, what’s more, merely that Murdoch objects to people reading his news for free online; it’s that he objects to—or seems truly puzzled by—what newspapers have become online. You get a dreadful harrumph when you talk to Murdoch about user-created content, or even simple linking to other sites. He doesn’t get it. He doesn’t buy it. He doesn’t want it.

Every conversation I’ve had with him about the new news, about the fundamental change in how people get their news—that users go through Google to find their news rather than to a specific paper—earned me a walleyed stare.

The more he can choke off the Internet as a free news medium, the more publishers he can get to join him, the more people he can bring back to his papers. It is not a war he can win in the long term, but a little Murdoch rearguard action might get him to his own retirement. Then it’s somebody else’s problem.